EUROPEAN FIXED UPDATE: Benchmarks weighed on in a continuation of the post-NFP trade, Gilts hit another incremental contract low

USTs: -5 ticks, 107-07+

• Benchmarks start the week under pressure, continuing the hawkish impulse from NFP on Friday with strong Chinese export data not helping; on this, we wait to see if President-elect Trump comments on the data with reference to his touted tariffs.


• Today’s schedule is particularly light, though the week as a whole is busy and headlined by US CPI on Wednesday where the Core M/M pace is expected to moderate to 0.2% from 0.3%; metrics which will be scoured for insight into the Fed’s trajectory, with markets post-Payrolls implying just under 24bps of easing for the entire year (i.e. a cut is no longer fully priced in 2025).


• In terms of Fed calls, Barclays looks for one cut in June (vs prev. view of March & June); BofA now expects no cuts in 2025; Goldman Sachs looks for two in 2025 (prev. three) in June and December, having pushed one of this year’s cuts to 2026 and as such maintain a terminal view of 3.50-3.75%.


• As it stands, USTs are at the low-end of a 107-06+ to 107-15 band, which marks another contact trough. Amidst this, yields are firmer across the curve with the short-end leading and reflecting the trimming of Fed easing expectations.

Bunds: -42 ticks, 130.71

• Pressured, in-fitting with the above. The data docket has been particularly light in Europe with Italian supply the only scheduled update.


• Usual mid-month auctions for Italy which do not feature a long-end component given last week’s syndications, as such the limited duration on offer should be well received even in the current pressured and supply heavy market. Into it, BTPs are lagging Bunds by a handful of ticks.


• Numerous ECB speakers on the wires this morning:, Chief Economist Lane said they need to work out the middle-path of not being too aggressive or cautious in actions and highlighted that services inflation needs to ease for the headline to sustainably go to target.


• Additionally, Rehn said the policy direction is clear while the speed/scale of easing is data dependent while Vujcic said a gradual and meeting-by-meeting approach is justified.


• Towards the trough of a 130.57-90 band which marks a fresh contract low. Technicians tout support at 130.48 before looking to the 130.00 mark.

Gilts: -59 ticks, 89.01

• Opened 59 ticks lower at the 89.00 mark, matching last week’s contract low, before extending to an incremental fresh base at 88.96. Since, the benchmark has stabilised just above opening levels.


• Weekend press featured remarks from Chancellor Reeves in China, the overall tone was in-fitting with commentary from last week with the Chancellor sticking to the fiscal rules and plans for one budget per year (in the autumn).


• On China, and a positive for the Chancellor, Reeves has outlined that the UK will earn GBP 600mln from five-year agreements made with China. Elsewhere, on growth, The Times reports that Reeves is to tell regulators to embrace risk and strip back overly cautious rules which are hindering growth.


• Fiscal update aside, impetus for Gilts will once again come from macro events overseas this week with US CPI headlining and of note/concern in wake of the hawkish reaction seen globally to the strong US jobs report. Additionally, the UK gets its own inflation release on Wednesday with the headline Y/Y rate seen staying at 2.6% and the core expected to tick down incrementally.


• While the benchmark hit a new contract low the 10yr yield remains just shy of last week’s peak. Thus far, today’s best is 4.905% vs 4.925% from last Thursday.

13 Jan 2025 - 09:55- Fixed IncomeData- Source: Newsquawk